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A Closer Look at China’s Growing Property Bubble


China’s “property bubble” is alive and well. Even as new home prices in Shanghai declined 5.7% last week, home sales have spiked. Property developers’ margins are certainly high enough so that they can offer discounts in order to increase volumes.

Shanghai Daily: Over the last seven days the sales of new homes, excluding government-funded affordable housing, surged 68.3 percent from the previous week to 140,400 square meters, according to a report by Shanghai Deovolente Realty Co.

A rumor has been widely circulated recently that the authorities will permit people who do not have a permanent residence but have lived in the city for three years to purchase a second property.  Many non-residents went shopping.

Property Wire: China’s financial centre Shanghai has eased home purchase restrictions to allow a broader pool of buyers to purchase a second property.

The city has decided to allow residence permit holders who have lived in the city for at least three years to buy a second home, according to a source at the city’s housing regulator.

It previously limited the second home option to locals, or those born in the city or who worked for an extended period of time and were officially recognised as locals, without specifying guidelines for non locals.

But today it seems the authorities have either denied or backed away from this policy. This is quite telling, as it may indicate the central government’s concern about a renewal of the property bubble. With signs of property markets heating up again, the policy my now be shifting away from easing existing curbs on home purchases. Liquidity remains high, while investment opportunities outside of the property markets are quite limited, particularly given current inflation levels. Many who “missed the bottom” in 2008 are now looking to buy in fear of missing the “bottom” again. Even the Beijing market is picking up.

China Daily: According to industry watchers, the property market has been warming up. Property sales in Beijing and Shanghai, for instance, both rebounded last week.In Beijing, 2,186 new and second-hand apartments were sold last week, up 30.2 percent week-on-week, according to the municipal government.”

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Reich: Housing is the Rotting Core of US Recovery

Economist and former U.S. Secretary of Labor Robert Reich says the biggest continuing problem for most Americans is their homes.

“Houses are the major assets of the middle class,” Reich writes in the Financial Times.

“Most Americans are therefore far poorer than they were six years ago. Almost one out of three homeowners with a mortgage is now ‘underwater,’ owing more to the banks than their homes are worth on the market,” writes Reich, now a professor of public policy at the University of California at Berkeley…”

Read more: 

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More Expensive Homes Have Taken Longer to Foreclose On

From WSJ 

“Michael Underwood hasn’t made a full mortgage payment on his four-bedroom house in San Francisco’s East Bay area since early 2008. But he has yet to be evicted from the home, which includes a lagoon-style pool carved into the property’s natural sandstone.

The Alamo, Calif., home that he bought in 1999 is now worth about $1.05 million, less than the $1.58 million that he owes after refinancing several times.”



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Case Shiller Index Ends 2011 on the Lows; Fourth Consecutive Quarterly Down Tick


“Home prices fell in December for a fourth straight month in most major U.S. cities, as modest sales gains in the depressed housing market have yet to lift prices.


The Standard & Poor’s/Case-Shiller home-price index shows prices dropped in December from November in 18 of the 20 cities tracked. The steepest declines were in Atlanta, Chicago and Detroit. Miami and Phoenix were the only cities to show an increase.

The declines partly reflect the typical slowdown that comes in the fall and winter.

Still, prices fell in 19 of the 20 cities in December compared to the same month in 2010. Only Detroit posted a year-over-year increase.

Prices have fallen 34 percent nationwide since the housing bust, to 2002 levels.”

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U.S. Home Sales Rose 2% in January

By Alan Zibel and Eric Morath 
WASHINGTON (Dow Jones)–The number of U.S. home buyers who signed contracts to purchase previously owned homes grew in January to the highest level in 21 months as the housing market showed signs of recovery.
The National Association of Realtors’ seasonally adjusted index for pending sales of existing homes increased 2.0% on a monthly basis to 97.0. It was the highest reading since April 2010, when sales were getting a lift from federal tax credits. The results were 8.0% above the same month a year earlier.
Economists surveyed by Dow Jones Newswires had forecast that pending home sales would rise by 1.0% on a monthly basis from an originally reported December reading of 96.6. December’s figures were revised downward to a reading of 95.1.
“Given more favorable housing market conditions, the trend in contract activity implies we are on track for a more meaningful sales gain this year,” said Lawrence Yun, the Realtors’ chief economist.
The index tracks agreements to purchase homes. A sale is considered pending when the contract has been signed but the transaction hasn’t closed. Pending sales typically close within one or two months of signing.
The housing market has been one of the weakest parts of the U.S. economy, but recent economic data show it is starting to get back on track after a price collapse that began 5 1/2 years ago. Mortgage rates have been hovering around the lowest recorded levels, employers have stepped up hiring and economists’ forecasts have become less gloomy.
However, prices in many distressed markets have continued to fall due to a continuing flow of foreclosures. While the share of loans in foreclosure has remained elevated, the number of new borrowers falling behind on their mortgages has been falling.
Pending sales rose in two out of four U.S. regions in December. They rose 7.7% in the South and 7.6% in the Northeast, but fell 4.4% in the West and 3.8% in the Midwest.
-By Alan Zibel and Eric Morath, Dow Jones Newswires; 202-862-9263; [email protected]
(MORE TO FOLLOW) Dow Jones Newswires
February 27, 2012 10:00 ET (15:00 GMT)

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Homebuilder Optimism Rises for 5th Straight Month

By Derek Kravitz, AP Real Estate Writer | Associated Press – Wed, Feb 15, 2012 5:01 PM EST

WASHINGTON (AP) — U.S. homebuilders are gradually growing more optimistic about the depressed housing market and believe homes sales could pick up sharply when the spring buying season begins.

The National Association of Home Builders/Wells Fargo said Wednesday that its builder sentiment index rose for a fifth straight month in February to 29, up from 25 in January. The index has climbed 15 points since September and is now at its highest level since May 2007.

Builders have generally become more hopeful during that stretch about current sales, sales six months out and foot traffic, the report shows.

Even with the brighter outlook, the industry has a long way to go. Any reading below 50 indicates negative sentiment about the housing market. The index hasn’t reached 50 since April 2006, the peak of the housing boom.

A key reason homebuilders are more optimistic is they are seeing more people express interest in buying a home. And rising interest has occurred alongside other improvements that suggest the troubled housing market could pick up after four weak years.

Sales of previously occupied homes rose in December for a third straight month. Mortgage rates have never been lower. And home construction picked up in the final quarter of last year.

Still, home prices continue to fall, and builders keep slashing their prices to stay competitive. Last year was the worst for new-home sales on records dating back to 1963.

Ian Shepherdson, chief U.S. economist for High Frequency Economics, said the index is now consistent with new-home sales rising to more than 450,000 annually. While that’s below the 700,000 considered healthy, it would be an improvement from the recent trend of just over 300,000.

“The story here is that pent-up demand is being freed by much easier mortgage conditions, low rates and rising employment,” Shepherdson said. “It’s real.”

Read the rest here.

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Warren Buffett On Housing Market: I Was ‘Dead Wrong’

OMAHA, Neb. — Billionaire investor Warren Buffett said Saturday that he was “dead wrong” with a prediction that the U.S. housing market would begin to recover by now, but he remains optimistic about the nation’s economy.

In his annual letter to Berkshire Hathaway shareholders, Buffett said he is sure housing will recover eventually and help bring down the nation’s unemployment rate. But he did not predict when that will happen.

Read the rest here.

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Economists Agree The Fed Has Little Power in Fixing Housing

“NEW YORK (CNNMoney) — Housing is still one of the biggest drags on U.S. economic growth, but don’t look to the Federal Reserve for help. The central bank may have few tools left to fix it.

That’s the basic hypothesis of a paper top economists presented to a room full of monetary policy elites in Manhattan Friday.

The US. Monetary Policy Forum is a one-day meeting presented by the University of Chicago Booth School of Business. In attendance are Federal Reserve officials, members of foreign central banks and economists from some of the world’s largest banks and top universities.

At Friday’s meeting, these top thinkers focused heavily on weaknesses in the housing market, and the mood was not exactly upbeat.

Traditionally, the Fed could aid the housing market during tough times, by lowering its key interest rate and thereby lowering mortgage rates. But the Fed’s interest rate is already near zero and mortgage rates are already at record lows — and yet the housing market remains in a slump.

Could the Fed be out of bullets when it comes to this key part of the American economy?

Has Obama’s housing policy failed?

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Current Housing Bust Much Worse Than Great Depression

Via Global Macro Monitor

Great chart from the recently released Economic Report of the President.  We suspect the Great Depression housing bust didn’t have the government props to soften the blow as we do today,  which,  therefore, on a relative basis,  makes the current bust much worse.   The prior conditions to the current bust must have been much worse than those before the Great Depression.

The Council of Economic Advisers (CEA) do note,

…during the Great Depression, the only other instance of nationwide price declines since WWI, much of the comparably-sized decline in nominal home prices was offset by a concurrent drop in general price levels, so the decline in real housing values was only about one-quarter as large as the one we recently experienced.

Thus the current collapse in housing prices is a relative price shift whereas the housing bust of the Great Depression was more a symptom of general price deflation in the economy.

Read the rest here.

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Why Renters Rule U.S. Housing Market (Part 1): A. Gary Shilling

The collapse in housing and the 33 percent plunge in house prices since 2006 are favoring renting over homeownership. This trend will dominate the housing market for the next four or five years, and put additional pressure on a weak economy.

Policy makers in Washington continue to have a soft spot for homeownership. Many recent government actions can be viewed as attempts to keep people in their homes, even owners who clearly can’t afford them. In addition to specific plans such as the Home Affordable Modification Program, or HAMP, and the Home Affordable Refinance Program, or HARP, the Obama administration is trying to revive the moribund housing sector by encouraging mortgage lenders and servicers to refinance loans at lower rates.

This reduces interest income for banks, which are now compelled by the Dodd-Frank law to retain 5 percent of the credit risk on lower-quality residential mortgages that are securitized and sold to others. Furthermore, banks are reluctant to refinance loans that Fannie Mae and Freddie Mac (NMCMFUS) then guarantee and put back to the lenders if they find any defects. The White House plan is a tough sell.

Read the rest here.

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